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Ventura County
Multi-Family Investment Market Summary
Dawn Dyer
Apartment fundamentals continued to strengthen during 2013, sustaining the momentum that has been building since 2009. Ventura County Apartment (5+ Unit) Investment activity grew sharply with nearly $300M in total sales volume and 27 closed transactions in 2013; up 35% from the 20 sales in 2012. In 2009, there were only nine transactions all year. Year-end average sales price per unit appreciated 7.5% from $144,768 in 2012 to $155,647 in 2013. Several larger institutional sales in Ventura County drove the average sales price per square-foot down to $193/SF from the 2012 average of $196/SF.
Increased investor demand, coupled with low mortgage interest rates, led to further compression in cap rates from 5.77% in 2012, down to an average of 5.4% for sales closed in 2013. However, investment activity was moderated by seller price expectations with many properties listed at cap rates well below threshold returns targeted by savvy buyers. Cap rates typically vary based on the age, condition and location of the property. Ventura County sales ranged from a 3.9% cap rate for a small beach-neighborhood property to 7.4% for an older collection of duplexes and bungalows that needed work. Eighty-seven percent of the properties traded at cap rates of 5% or more.
The majority of 2013 transactions were small buildings of 5-12 units; with only four sales of larger
buildings. In Ventura, a 400-unit complex closed for $72.8M in February and a 316-unit
property sold in October for $82M. An 85-unit transaction in Oxnard, with a cap rate of 5.75%, was
part of a portfolio of properties that included buildings outside of Ventura County.
While underlying fundamentals remain strong on a national level, 2013 may have been the peak of this cycle as rising interest rates, slower rent growth and cap rate compression reduced multi-family investments during the fourth quarter. Job creation and increased household formation led to a modest decline in the national vacancy rate to 4.1%, down from 4.6% in 2012; but rent appreciation dropped from 4% in 2011 to 2.8% in 2013. With slow wage growth, Class A rents began to meet income limitations. As a result, secondary and tertiary markets have started to outperform primary markets with regards to effective rent growth. This trend is expected to continue into 2014, driving yield-seeking investors into non-primary markets like Ventura, where investors can recognize significant rent gains by rehabilitating older properties.
Even though apartment construction is booming across the nation, net absorption is not expected to be a problem. According to “The Sate of the Nation’s Housing 2013” overall supply is in line with increasing demand for rental housing. After the virtual shutdown in apartment development in 2009, deliveries of new units dropped to the lowest levels on record in 2010 and 2011. Although nearly 200,000 apartments were built in 2013, it represents only about two-thirds of the level needed to meet demand. New mortgage regulations, effective January 2014, will fuel the rental market by making it tougher to qualify for home loans. Demand for apartments will also expand as 80 million “Echo Boomers” secure jobs that will allow them to move out of family homes and form new households; as well as from immigrants and empty-nesters.
Indeed, 2014 may be the right time to sell for owners who have been waiting for a “sweet spot” in the market. As investor enthusiasm remains very strong, and the number of buyers continues to far outweigh sellers, we expect current trends to continue into next year. However, rising mortgage interest rates, slow and uneven employment growth and perceived competitive risk from newly constructed units will moderate price appreciation by putting downward pressure on cap rates.
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All information provided herein is from sources deemed to be reliable, but no guarantee or warranty is stated or implied.
Copyright 2014 Dyer Sheehan Group, Inc.